Shake-Up at DaimlerChrysler; Incoming Chief Led Turnaround

By MARK LANDLER; Danny Hakim contributed reporting from Detroit for this article.

Published: July 29, 2005

J?n E. Schrempp, the embattled German auto titan who created a trans-Atlantic carmaker but spent years defending his trouble-prone empire, will step down as the chief executive of DaimlerChrysler at the end of 2005, more than two years earlier than planned.

The company said that Dieter Zetsche, a popular, well-regarded executive who turned around the money-losing Chrysler division, would succeed Mr. Schrempp as chief executive. Mr. Zetsche's deputy, Thomas W. LaSorda, who is Canadian, will take over the Chrysler division.

DaimlerChrysler said in a terse statement that the time was right for a change in leadership at the auto manufacturer, the world's fifth-largest.

The announcement coincided with its release of better-than-expected second-quarter earnings, which seemed timed to insulate the 60-year-old Mr. Schrempp from suspicions that he was being bundled out of his job by the company's board.

''We had been talking about it for a while,'' Mr. Schrempp said in a conference call with analysts and journalists on Thursday. ''This is a process of thinking we did all together.''

But analysts and shareholders welcomed the departure with something close to euphoria. Two investment banks raised their ratings on DaimlerChrysler's stock, while the shares soared more than 9 percent, the biggest single-day rise in six years.

''Schrempp is one of the last dinosaurs of Germany Inc.,'' said Arndt Ellinghorst, an analyst at Dresdner Kleinwort Wasserstein, using a phrase that connotes old-style German business practices. ''He represents a strategy of acquiring assets and building empires that just didn't work.''

The choice of Mr. Zetsche, a 52-year-old German executive who made his name in Detroit, to run DaimlerChrysler speaks to the influence of American-style management at the company, even though the 1998 merger of Daimler-Benz and the Chrysler Corporation is generally viewed as a German takeover.

Mr. Schrempp said he would not seek a seat on DaimlerChrysler's supervisory board, a customary sinecure for a German chief executive after he steps down. And the company will not pay Mr. Schrempp beyond 2005, even though his contract runs until the spring of 2008.

By making a clean break with its boss of 10 years, DaimlerChrysler may be trying to avoid the allegations of cronyism and corruption that have dogged Volkswagen, where the former chief executive casts a long shadow from his perch as head of the supervisory board.

''There is a recognition in Germany that they have to reduce the coziness between managers and the board,'' said Garel Rhys, director of the Center for Automotive Industry Research at Cardiff University in Wales.

Promoting Mr. Zetsche to chief executive also eliminates the risk that General Motors or Ford could poach him. Both companies are in deep trouble and could dearly use a Zetsche-like turnaround.

Mr. Schrempp's exit may augur further executive shuffles in Stuttgart, where DaimlerChrysler is based. Eckhard Cordes, the head of the Mercedes-Benz division, has submitted his resignation, a person close to the company's board said. He said the board would like him to stay.

Mr. Cordes had been Mr. Zetsche's archrival for the top job. His departure would leave the company's flagship car division leaderless at a time when it is battling eroding profits and deteriorating quality. A spokesman for DaimlerChrysler declined to comment on the reports.

Mr. Schrempp alluded to the problems at Mercedes in the conference call, though he tried to strike a sanguine tone.

''Clearly, DaimlerChrysler is not yet where it wants to be, or where I know it will certainly arrive in the foreseeable future,'' he said. ''Nevertheless, we have created the preconditions for success.''

To shareholders, who have listened to such statements for years, DaimlerChrysler remains a story of unfulfilled promise.

At the news conference in London on May 7, 1998, that announced the merger, Mr. Schrempp presented DaimlerChrysler as a blueprint for the carmaker of the future. By combining the cutting-edge technology of Mercedes with the mass-market reach of Chrysler, DaimlerChrysler, he said, would conquer markets worldwide.

But the marriage was awkward from the start. In 2000, Mr. Schrempp told The Financial Times that he used the phrase ''merger of equals'' to lure Chrysler's executives into doing the deal.

''If I had gone and said Chrysler would be a division, everybody on their side would have said, 'There is no way we'll do a deal,''' Mr. Schrempp said in the interview.

Kirk Kerkorian, a billionaire investor and former Chrysler shareholder, promptly filed a lawsuit, which accused Mr. Schrempp of misleading shareholders. Mr. Kerkorian lost the case in April.

The challenge of integrating a German-American colossus, with very different corporate cultures, was even thornier. Chrysler had been prospering when Daimler-Benz took it over, but it soon fell into deep financial trouble, dragging down the performance of the entire company, which lost 662 million euros in 2001 ($799 million at current conversion rates). That consumed the time and energy of DaimlerChrysler's top executives.